Apple will kick off its India manufacturing plans by initially assembling 3-4 lakh units of its iPhone SE model at the Karnataka plant being set up by contract manufacturer Wistron, as the maker of the iconic iPhones looks to take a deeper bite of a key market amid slowing global smartphone growth.

The Cupertino-based tech giant is likely to go ahead with the Bengaluru assembly plan without waiting for the government’s nod for the list of tax concessions that it had sought along with other demands. The company wants to “experience manufacturing in India”, a person familiar with the company’s plans told ET.

“It is Apple’s first such venture in India… The demands they have made are for the larger plans of the company to really scale up manufacturing in India,” a senior government official told ET, requesting anonymity.

A person in the contract manufacturing industry said Wistron is ready to start assembling the phones. “The duty concessions are not connected to the plant,” the person added. Wistron’s facility is set to begin assembling locally from April.

Apple and Wistron didn’t comment on queries seeking confirmation of production plans.

The biggest hurdle preventing Apple from cornering a larger slice of the Indian smartphone pie is its price points which, typically, for a new model start at over Rs 50,000 in a market where 70-80% of the devices are sold in the under-Rs 10,000 segment. This has led to Apple falling way short of its target of selling 10 million mobile phones in India by 2016-17. Starting local assembly and scaling it up to full manufacturing will help the company price its products competitively and corner a bigger portion of the market where nearly 700 million mobile phone users still use feature phones.

The iPhone SE, launched amidst much fanfare in April 2016, was widely anticipated to be aimed at emerging markets, including India, as it was priced lower than all other iPhone models. But even the lower price tag of Rs 39,000 for a basic model of SE was too much for the mass market.

The handset is currently retailing at less than Rs 30,000 in India and would become cheaper still if produced here.

“While the immediate advantage would be the tax benefit of 10-12% if it is manufactured (here) compared with imports, it will also give Apple an edge in India, which is the fastest-growing large market, as opposed to slow growth in China,” said Navkendar Singh, senior research manager, client devices, at IDC India.

If Apple manages to capture even a “sliver of this large potential consumer base which considers Apple an aspirational brand, it can benefit hugely”, Singh said.

The company can spend the savings from local manufacturing to strengthen its retail and distribution channels in India, just like Chinese players Oppo and Vivo, Singh said. “So in a way, Apple and India need each other.”

Industry insiders said Apple could have started by making the iPhone 5S — its top-selling model — locally, but has chosen the iPhone SE as it is the lowest-priced offering in Apple’s stable and also amongst the most recent, which would support future iOS upgrades.

Industry executives said Apple may phase out iPhone 5S in India in a couple of quarters, and pointed out that the handset has been discontinued in many other markets and is at the end of its life cycle.

One of the persons aware of Apple’s plans said the company was open to relocating some of its manufacturing units from China to India due to rising labour costs in that country. The plant in Peenya district, on the outskirts of Bengaluru, could help Apple better understand local manufacturing and the challenges involved, said this person.

LIST OF CONCESSIONS

The iPhone maker has sought a string of concessions to manufacture in India, including a 15-year exemption from customs duty, assurance on continuing countervailing duty exemptions on electronic components for the same time period, besides clarity in policy for selling refurbished goods here. It has also sought additional benefits under the Modified Special Incentive Package Scheme (M-SIPS).

An inter-ministerial group including senior officials of the industry department, and the environment and IT ministries along with revenue department officials had met Apple’s representatives in January to discuss the wish list. A final decision is yet to be taken.

The government, however, might find it difficult to meet the demands amid the rollout of goods and services tax (GST) in the coming financial year, which subsumes all indirect taxes and leaves little space for offering incentives for particular sectors.

Different sections of the central government though have indicated their eagerness to bring Apple to India, which would signify a huge leg up for the ‘Make in India’ initiative.

State governments too are competing with each other to host Apple’s manufacturing business.

“Apple wants to make India its third home (in addition to the US and China) and they want to manufacture in Karnataka. We want to support them,” Karnataka industries minister RV Deshpande told ET. He said he had met the Union ministers concerned over past three days to push the state’s case.

“They (Apple) would first like to start with assembly and then go for manufacturing. There are some issues which are pending with the Centre… We have requested the Centre to look at it favourably,” Deshpande said.

Maharashtra, too, has gotten into the act. On Tuesday, state chief minister Devendra Fadnavis met senior officials from Foxconn, Apple’s biggest contract manufacturer, and offered to compensate for the 11.5% import duty in case talks with the Centre did not yield a positive result.